Why Shared Equity is Not the Answer

Posted by Ben Mather25sc on October 17, 2018

The new report from the Salvation Army “Beyond Renting” talks about ways of getting more people out of renting and into long term ownership. This is a worthy goal, particularly given the current plight faced by renters in this country. Sadly, the concept of the government offering shared equity will only stoke the fires of our housing market, making it less affordable in the long run.

The Opportunities Party agrees with many of the problems that the Salvation Army is pointing out:

There is a large pool of renters that aren’t helped by social housing or Kiwibuild.

Renting is unsecure, forcing people to move often. This makes it difficult for children going to school and disrupts community bonds.

Rental accommodation is, on average, of worse quality than owner occupied accommodation. People are dying from damp and cold.

Renters have less money in their pockets because people who own houses get the biggest tax breaks in the country, and renters are left to pay through their income tax.

These income tax breaks are causing speculation in housing, pushing house prices up and out of reach of average Kiwi renters.

Because of this untaxed capital gain renters are falling behind in the wealth stakes.

These are real problems. But they need to be dealt with at the root cause.

Housing is expensive to buy or rent in New Zealand because of speculation. By killing speculation we can bring down prices over time, make housing more affordable. The money we are currently using for speculation would be better used investing in building more houses or improvements that make our housing stock better. That vision is at the core of The Opportunities Party tax reform policy.

Of course this will take time to achieve - we estimate 10-15 years is needed (depending on where you are in the country) to make houses affordable again without crashing house prices and our banking system along with it. In the meantime renters rights need to be improved - a lot more than our current Government are proposing - because there is a whole generation that will remain as renters. We also need to empower the community housing sector to offer at cost rental housing in competition with private sector landlords. This will help keep rents down.

Shared equity offers renters the opportunity to buy a house with the government as a part shareholder. The buyer pays part of the mortgage, and pays the government rent for the rest.

This may sound like a good idea, but in places like London (which has similar tax incentives to invest in housing) it has just pushed up house prices even further. Shared equity started offering houses to key workers in London on a 50/50 basis, but as prices continue to rise they now offer people the chance to buy 25% of a house. If you don’t take care of the reason for speculation, then anything that boosts demand for housing will just stoke speculation even more.

Perhaps the Salvation Army are trying to offer something that will be palatable to the current crop of politicians in power. Faced with successive governments that won’t tackle the real problems on housing, the Salvation Army is at least hoping some poor people can get in on the tax breaks that owning your own home provides. Shared equity has proven politically popular overseas, and has worked in some European countries. The difference is that these countries don’t have an incentive to invest in housing over other investments (like businesses). As a result, house prices are much more stable.

In the New Zealand context it would only serve to prop up the Ponzi scheme that is our housing market, and will make housing even less affordable for future generations.

The Opportunities Party will stop kicking the can down the road and deal to the core of the problem: our poor legal framework of renters rights, and the tax break around housing.

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I agree with some of the points above, and the conclusion, but the thing I’m missing in this whole discussion is: which part of our Constitution says that all Kiwis have to own their own house? It’s purely an expectation, albeit with a long precedent, but nothing more than that.